Altrio Says It's For Sale

Altrio Communications Inc., the competitive bundled-services provider currently building systems in the Los Angeles suburbs, has notified regulators that it will accept no new customers and that it's trying to find a buyer for the system.

Altrio gained its first franchise in Arcadia, Calif., in 2001. It's reportedly nearly done with the plant there and in neighboring Monrovia, and also serves customers in Pasadena. But the company began notifying city officials during the week of Dec. 7 that it has had trouble finding new investment funds.

"We are disappointed in taking this action, but the capital markets have been difficult," said Altrio CEO David Rozzelle, a former InterMedia Partners executive. Altrio could not attract the necessary capital to continue to grow the company, he added.

Analysts say a sale is possible, but it all depends on the price Altrio's board sets.

"An overbuilder is a difficult business model. They have no economies of scale, no deep pocket that lets them build community to community," said Stifel, Nicolaus & Co. cable analyst Ted Henderson. The sale comes at the end of the first "up" year in the broadband sector in four years, as investors showed improved perception of the value of broadband home, he noted.

But part of the attraction is that most broadband companies are the only bundled services provider in their market, he said. That is not so with Altrio, which sells telephone services, video (including video-on-demand and subscription VOD) and high-speed data in competition with Charter Communications Inc. and Adelphia Communications Corp.

Altrio launched with hopes of passing 427,000 homes in a cluster extending from the eastern edge of Los Angeles city along the San Bernardino foothills. In addition to ones in Arcadia and Monrovia, it has franchises in Pasadena, Temple City, Sierra Madre, Altadena and Los Angeles.

Early in 2002 it announced it had raised $180 million in financing. According to the company Web site, investors include Frontenac Co., Bessemer Holdings, Soros Private Equity Partners, SSB Capital Partners, Royal Bank Capital Partners-Telecom Fund and Grove Street Advisors. The business plan called for the initial investment to launch construction, with the build-out funded from revenue from early customers.

But in October, Altrio cut all but 35 employees in October. Rozzelle said the remaining employees are enough to continue running the network.

City officials expressed disappointment at Altrio's decision. Local officials approved the overbuild, in part, because they believed it would have a positive effect on cable rates.

"We've seen some restraint" in basic rate hikes, said Monrovia public information officer Richard Singer. "We'll be sorry to lose that."

Building a competitive telecom provider is not easy and Singer said his city was told that "basically, they're running out of money."

Bill Kelly, Arcadia city manager, said his city received notice on Dec. 15, and the Altrio issue has been turned over to special counsel. If Altrio sells, the city has the authority to approve any new operator, he said.

Perhaps the most disappointed locality is the city of Los Angeles, which has worked to get competition from multiple potential overbuilders, including RCN Corp. and Western Integrated Networks LLC, in addition to Altrio.

Of those, RCN revised and truncated its business plan, pending improvements in the capital markets, before it got its L.A. operation off the ground.

WIN went bankrupt during its first build in Sacramento, Calif., and never acted on its Los Angeles franchise.

Its Sacramento operation was bought by a local competitive local-exchange carrier, which had been interested in entering the bundled-services business for some time. No such potential buyer appears to be champing at the bit in the L.A. suburbs where Altrio operates.